Dell Needs the Channel

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Opinion: As the direct model shows signs of decay, Dell should get serious about formalizing its relationship with the channel.

The channel is Dell Inc.'s mistress, and it's time for the direct-selling vendor to make honest-to-goodness partners out of solution providers.

For years, Dell and solution providers have worked together in an illicit back-door relationship, although the Round Rock, Texas, vendor has had tepid official forays into the channel now and then.

All the while, Dell executives have continued to beat their chests with oft-repeated vows of a commitment to the direct-selling model. Direct is king, they have been known to say.

Founder Michael Dell's rags-to-riches memoir is titled "Direct from Dell" and provides an account of how he created a business model that cut out the intermediary to establish a direct link between manufacturer and customer. That intermediary, of course, is the IT channel that the bulk of vendors by far find indispensable.

Marketing verbiage on Dell's Web site boasts of a model that is "the most efficient path to the customer" that provides a "single point of accountability."

What Dell's marketing machine won't tell you is that Dell is generating a fair amount of revenue from the channel20 percent by some estimates. VARs create incremental opportunities for the PC maker that it likely would not get otherwise.

As reported by my colleague John Hazard May 11, more and more VARs are marketing Dell product and receiving discounts from the vendor for doing so that rival the incentives they get from PC makers with official channel programs.

Ron Cook, chairman and CEO of Connecting Point of Las Vegas, said one of his customers just shifted its $35 million annual hardware spending allocation to Dell from rival Hewlett-Packard.

So much for "direct is king." The model that has served Dell so well over the years is starting to show serious signs of aging. And it isn't aging like wine, in case you wondered.

Dell PC unit shipments in the first quarter grew at about 3 percent less than the overall market, according to Gartner. The vendor also has warned that it will miss Wall Street forecasts for its most recent quarter. Dell has reacted by lowering prices sharply, a tactic it employed in 2000 to great success.

But price drops this time are unlikely to produce the same results because the considerable price advantage Dell used to have against competitors no longer exists. Besides, the lower the price, the lower the profit margin.

It seems increasingly clear that what Dell needs to do is to get serious about the channel. The company should publicly acknowledge that it not only already does business with the channel but also needs solution providers to get into the markets they own.

Sure, Dell has an enviable presence in the corporate world and the consumer market, but in the space between individual end users and large organizations, there is considerable opportunity. Attempting to reach those markets without the channel will only get a vendor, any vendor, so far.

Even though Dell traditionally has played the role of Channel Enemy No. 1, it is clear by the number of solution providers already selling and servicing the brand that if the vendor were to establish a support infrastructure for those providers and officially embrace the channel, it wouldn't have too much trouble finding partners.

When you really think about it, Dell already has a channel of sorts. What the vendor still lacks is the courage to admit it needs the channel.